Is Bankruptcy the Answer? How to Decide if Filing Is Right for You

 The phone rings at all hours of the day and night with creditors calling for payment. You’re afraid to open the mailbox, as the threatening letters are starting to pile up. Even when you can pay your bills, it’s such a small amount that you’ll never pay what you owe, never mind get ahead.

When your financial picture begins to look dire, chances are, you’re open to just about any solution, including filing for bankruptcy; however, while bankruptcy might seem like the ideal way to make a fresh start when you’re struggling under a pile of debt, it’s not right for everyone and every situation. In fact, unless you meet certain criteria, you might be better off consolidating your debt with bad credit loans, undergoing credit counseling or finding another alternative to improving your financial picture.

Bankruptcy

Understand the Consequences

Before you even consider filing for bankruptcy, it’s important to understand the long- and short-term consequences of that decision. While a bankruptcy filing will give you relief from the collection calls and letters — it’s illegal for creditors to contact someone who has made the filing — and might discharge much of what you owe, it does not give you a free pass to not pay your debts.

First, not all types of debt can be discharged through a bankruptcy. Student loan debt, for example, as well as tax debts and criminal fines will remain, and you’ll have to pay what you owe. Second, bankruptcy can cause you to lose some of your personal property, such as your car, home, jewelry or personal items if they are not exempt or they are worth more than the limits set by bankruptcy courts.

In the long term, though, while declaring bankruptcy can help you start over without a mountain of unpaid bills, it does affect your credit. The Fair Credit Reporting Act allows for the filing to remain on your credit for up to 10 years; in some cases, you might be granted credit again once the filing is a few years old, but bankruptcy will impact your credit score, something that only time and a solid payment history can remedy.

Making the Decision

Even if you think you can handle the consequences of filing bankruptcy, filing still might not be the right decision. Because so many people have filed for Chapter 7 bankruptcy (the most common type of personal bankruptcy) within the last decade — and some have abused the protections — the rules for who can file and when have been tightened. Essentially, in order to file, you need to prove you absolutely cannot pay off all of your debts with the income and assets you have. This is done through a series of complex calculations that take into account everything from your current income to your savings and the property you own.

In addition to proving you can’t pay, the law also requires that you complete credit counseling within 180 days of filing. In some cases, a credit counselor will determine you can pay your debts and develop a workable plan. That being said, bankruptcy can be a good option for you if:

  • Your debt is more than 50 percent of your income.
  • You can’t repay all of your revolving debts (i.e., credit cards) within three years.
  • You’re only making minimum payments on your debts, and not making a significant dent in the balances.
  • Your creditors will not negotiate with you to find a way to pay what you owe.

Of course, every situation is different, and you will only know for sure whether bankruptcy is a viable option if you speak to an attorney. Because there are significant fees associated with filing, including attorney’s fees, looking at alternatives like a debt-management program or consolidation loan might make more financial sense.

With the economy struggling and jobs are more difficult to find than ever before, millions of people are finding themselves drowning in debt. Bankruptcy is one option for getting back over water though, and a decision that should not be made lightly; in fact, bankruptcy is a last resort — in most cases, with the right advice and a good plan, you can pay off what you owe and still come out ahead.

About the Author: Financial adviser Celia DeVine has worked with dozens of people, helping them manage their money and get out of debt. She blogs about money management and savings strategies, for several sites.

What is Payment Protection Insurance? (PPI)

Payment protection insurance is a form of insurance that is usually issued to individuals in a situation where it is perceived that there may be a need to cover payments, should an unforeseen circumstance befall an individual rendering the individual in a position whereby they cannot make the repayments on a given financial agreement.

ppi

Payment protection insurance is actually being claimed back by the general British public at a faster rate than any financial product that has been sold in the past 10 years.PPI claims are so prolific at the present moment that the banks are having to set aside billions of pounds to make up for the money owed.Making a compensation claim at grass roots level is also very simple, but it is good advice to get any claims in early because there are a certain amount of claims that are queued because of the backlog and sheer volume of queries.

The UK ppi epidemic is the reaction of the aggressive sales techniques of the previous 10 years by the financial institutions of the united kingdom, they are currently in a particularly contentious position because they are now having to refund all their profits with interest and thus from a business perspective, it has been a very strange move for them.
It is also possible to claim bank charges back, but ppi claims are worth a lot more to the consumer and so it is recommended to make any compensation claims for payment protection insurance a high priority.